Innovation, sales digitalisation key to higher insurance penetration – Apere, CEO, Anchor Actuarial Services

Motor vehicle insurance has continued to be an important aspect of insurance sales due to the high level of risk tied to driving‭ ‬on the road‭. ‬Regardless of this‭, ‬many Nigerians still prefer to go through the back door in getting insurance policies for their motor vehicles‭. ‬In this interview‭, ‬Dr‭. ‬PIUS APERE‭ (‬Actuarial Scientist/Chartered Insurer‭), ‬Chairman/CEO of Anchor Actuarial Services Limited‭, ‬an indigenous risk management and actuarial/consulting firm in Nigeria‭, ‬spoke with Business A.M’s ZAINAB IWAYEMI to give insights on the operation‭, ‬benefits‭, ‬and challenges of motor vehicle insurance sales as well as how the‭ ‬space could be utilized to improve the rate of insurance penetration in Nigeria‭.‬

Could you give an insight into motor insurance and how it works in Nigeria?

Motor insurance is an insurance policy that covers the policyholder against financial losses – resulting from an accident or other damages – sustained by the insured vehicle. Its primary use is to provide financial protection against physical damage or bodily injury resulting from a traffic collision, fire, burglary, theft, etc.

According to the Motor Vehicles (third party insurance) Act, it is imperative that you purchase motor insurance prior to taking your vehicle out on the roads. Thus, the users of motor vehicles must be insured against third-party risks. The third-party motor policy coverage is the bare minimum that you are mandated to acquire for your vehicle to ply on the road. Third-party legal liabilities cover damages (both bodily injuries and death) caused to third-party as well as financial losses to a third-party property. On the other hand, the comprehensive motor insurance policy covers third-party liability along with compensating for own (policyholders) car damages/losses as well.

There are different types of auto insurance, including but not limited to the following:

·      Private Car Insurance – Private Car Insurance is the fastest growing sector in the Nigerian motor insurance market. The amount of premium depends on the make and value of the car, state where the car is registered and the year of manufacture.

·      Commercial Vehicle Insurance – Commercial Vehicle Insurance provides cover for all the vehicles which are not used for personal purposes. Compared with private vehicle insurance, the amount you need to pay is lower than the commercial vehicle because private vehicles are used less frequently than commercial vehicles.

Over the years, some companies have introduced innovative insurance products that are relatively very cheap as policyholders find it difficult to buy comprehensive insurance policy due to the economic hardship facing motorists in Nigeria. For example, Linkage Assurance Plc had introduced an innovative product called Linkage Third Party Plus in 2017, which covers third party liabilities plus a maximum cash sum of N250, 000 for the insured having paid N10,000 as premium. The premium for compulsory third-party insurance introduced by NAICOM is just N5,000. This means that the additional premium of N5,000 covers the insured’s own vehicle damage up to the maximum cash sum of N250,000.

However, the following are some of the challenges facing the motor insurance market, namely lack of education and awareness of insurance products that meet the needs of the consumers, under development of digital/online insurance products, unethical business practices, leading to a low insurance penetration rate in the country.

What are the benefits of motor insurance for policy holders and third parties?

Motor insurance gives you peace of mind as you know you have a financial backing in case of damages suffered by your vehicle in the event of any unexpected incident. Accidents may be caused by anyone, and motor insurance policy helps to ensure that you, as well as your car, are to stay safe.  Lots of insurance policyholders not merely buy a motor insurance policy for damages to their car but in addition, also go for medical insurance as a part of the policy (e.g. rider to the comprehensive motor insurance policy).  In this way, if anything happens to you in your vehicle, your insurance policy will take care of all the expenses for that as well.

Nowadays, an additional advantage to motor insurance is third-party liability. Because of this benefit, anyone that gets injured due to any sort of accident he is involved in, could also be covered under your insurance policy.

A number of motor insurance policies include a feature that is known as the no-claim discount (NCD), a common practice in the overseas insurance market.  This is applicable during the time when you don’t file a claim for insurance in quite a long time, so in this case the motor insurance provider will provide you with a discount on your premium rates.

A motor insurance policy has been designed to match the size of your pocket without being a strain on your expenses. With the ideal amount of insurance coverage and exclusions, your insurance policy is going to be effective for your vehicle and situation.

What are the factors that can help policyholders reduce motor insurance premium?

The motor insurance premium can vary depending on many risk factors that are believed to affect the expected cost of future claims. These risk factors include but are not limited to the following:

·         Type of cover – A comprehensive insurance policy that covers both insured vehicle as well as a third-party would attach higher premiums as opposed to its third-party counterpart. The coverage selected in terms of deductibles, limit, covered perils will also affect the premium charged.

·       Geographical location – Your area of residence is one of the crucial determinants of motor insurance premiums. For instance, should you be a resident of a metropolitan city in the country, chances are vandalism and accidents would be more as compared to smaller cities. This leads insurance providers to set increased premiums on your motor insurance policy.

·  Installed safety features – Should your vehicle be equipped with additional safety features, such as anti-theft devices, GPS tracking system, alarm and anti-lock braking features, insurers consider your efforts towards securing your car and set discounted premiums accordingly.

·       No Claim Discount – is the reward that you would be eligible for should you drive responsibly the year round and not claim for damages. Also, it’s prudent to keep off claiming in case of minor damages – fixing a broken windshield, for instance.

·         Profile of the driver – age, gender, driving history

·         Usage of the car – commute to work or not, predicted annual distance driven.

What’s your thought on the ensuing argument that women are less susceptible to accident or risk compared to men, hence the call for a reduction in premium for the female gender?

In the past, it was a common practice to have gender-related motor insurance premium rates, that is, insurance companies having two different rates for men and women. This is because the male drivers, especially younger ones, are on average often regarded as tending to drive more aggressively. Thus, the premiums charged for policies on vehicles whose primary driver is male are often higher. This discrimination may be dropped if the driver is past a certain age.

However, on 1 March 2011, the European Court of Justice decided insurance companies who used gender as a risk factor when calculating insurance premiums were breaching EU equality laws. The court ruled that car-insurance companies were discriminating against men. The effect of the ruling has been that, while the premiums for men have been lowered, they have been raised for women.

In Nigeria, motor vehicles are acquired without proper insurance licenses. An estimated 9.04 million out of 11.76 million vehicles in Nigeria road are said to carry fake insurance. What can be done by NAICOM to tackle this challenge?

It is not only the responsibility of NAICOM to do something about the fake insurance certificates being issued by unscrupulous insurance agents but also all key players in the insurance industry. What NAICOM can do on their part is to collaborate with law enforcement agencies to ensure that fake insurance policyholders are prosecuted.

The Nigerian Insurance Association (NIA) has created a platform whereby all the motor insurance policies that are insured in a year by different insurance providers are captured onto the platform. The platform is then made available to the Federal Road Safety Corps (FRSC) who has access to the platform and verify whether that vehicle is insured or not. This is one of the ways in which the insurance industry has collaborated with government agencies to reduce fake insurance licenses.

In spite of the above, the issue of fake insurance has been encouraged by the insurance companies themselves, particularly those who are involved in unethical rate–cutting practice due to competition. Thus, the insurance companies, insurance brokers/agents and the regulator (NAICOM) have roles to play in order to eradicate the issuing of fake motor insurance certificates.

How can insurance providers tap into motor insurance to improve the industry in Nigeria?

The insurance companies have to come up with innovative motor insurance products, aimed at targeting different segments of the motor insurance market. Especially now that people are finding it difficult to pay for insurance premiums, the insurance product designs have to meet the needs of the target markets such as Linkage third party plus product that was introduced in 2017. Without innovative product designs, the desired insurance penetration rate and financial inclusion target cannot be achieved.

Furthermore, we need technology to sell motor insurance and this requires developing simple online insurance products in order to drive the insurance penetration in the country. These cannot be achieved without providing the enabling regulatory environment to operate. Therefore, NAICOM has to work around the regulatory aspect to allow insurance companies sell their products via the Internet. In the same vein, the insurance companies operations need to be digitalized in order to enhance an effective and efficient service delivery to meet clients’ expectations.